Express Delivery and the Postal Sector in the Context of
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Northwestern Journal of International Law & Business Volume 23 Issue 2 Winter Winter 2003 Express Delivery and the Postal Sector in the Context of Public Secto Anti-Competitive Practices D. Daniel Sokol Follow this and additional works at: hp://scholarlycommons.law.northwestern.edu/njilb Part of the Antitrust and Trade Regulation Commons , International Law Commons , and the International Trade Commons is Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons. Recommended Citation D. Daniel Sokol, Express Delivery and the Postal Sector in the Context of Public Secto Anti-Competitive Practices, 23 Nw. J. Int'l L. & Bus. 353 (2002-2003)
Express Delivery and the Postal Sector in the Context of
Express Delivery and the Postal Sector in the Context of Public
Secto Anti-Competitive PracticesNorthwestern Journal of
International Law & Business Volume 23 Issue 2 Winter
Winter 2003
Express Delivery and the Postal Sector in the Context of Public
Secto Anti-Competitive Practices D. Daniel Sokol
Follow this and additional works at:
http://scholarlycommons.law.northwestern.edu/njilb Part of the
Antitrust and Trade Regulation Commons, International Law Commons,
and the
International Trade Commons
This Article is brought to you for free and open access by
Northwestern University School of Law Scholarly Commons. It has
been accepted for inclusion in Northwestern Journal of
International Law & Business by an authorized administrator of
Northwestern University School of Law Scholarly Commons.
Recommended Citation D. Daniel Sokol, Express Delivery and the
Postal Sector in the Context of Public Secto Anti-Competitive
Practices, 23 Nw. J. Int'l L. & Bus. 353 (2002-2003)
D. Daniel Sokol*
I. INTRODUCTION
International trade plays an increasingly important role in global
eco- nomics. One growing part of the international economy has been
express delivery services. Because various governments that
maintain public sector postal monopolies have erected barriers to
entry to impede its growth, ex- press delivery has become an
important battleground within the realm of trade. International
trade, which initially consisted mainly of the trade of goods, is
now increasingly focusing on services. This article focuses on the
problem of a particular type of service and the barriers on this
service (ex- press delivery) that countries place upon it. Not
surprisingly, those coun- tries that are the most competitive and
have the fewest barriers to trade and problems of monopolization
(i.e., those countries that suffer least from mo- nopolistic
behavior in their express delivery market) have the most effective
and competitive distribution systems.' Section II of this article
explains the importance of express delivery to the international
economic system. Sec- tion III offers examples of how countries
erect public sector barriers to en- try in this field to limit the
ability of private sector entrants to compete. Section IV examines
how privatization in conjunction with liberalization will improve
opportunities for entrants to provide express delivery services.
Section V explains how current legal mechanisms could promote
greater competition on the issue of public sector barriers to entry
in the express de- livery segment of the postal services sector.
Section VI concludes by advo-
* B.A. Amherst College; MSt. University of Oxford; J.D. University
of Chicago; Associ-
ate, Steel Hector & Davis LLP. The views expressed in this
article are those of the author alone and do not represent those of
the firm or its clients.
1 Office of the United States Trade Representative, Express
Delivery Services, available at
http://www.ustr.gov/sectors/services/express.html (n.d).
Northwestern Journal of International Law & Business 23:353
(2003)
cating increased global cooperation for the elimination of entry
barriers. Many countries have placed anticompetitive barriers for
entrants in
their respective express delivery markets, in many cases to protect
such countries' local monopolies.2 Consumers are the ultimate
losers of these policies, because they must pay higher prices for
poor service quality.3
Competition stimulates productive efficiency. Companies that face
falling costs in production (due to competition and the
corresponding efficiency gains) respond by reducing price and
increasing production.4 With all other things being equal, such
gains in efficiency lead to greater consumer wel- fare. Continuing
barriers, therefore, threaten the global economy by reduc- ing
efficiency gains and the ability to maintain effective supply
chains of the delivery of goods from one country to another.
II. NATURE OF EXPRESS DELIVERY SERVICES
Express delivery is a method of communication and transportation
that serves to get items from door to door within a definite period
of time. The key element to this service is the time sensitivity of
the packages, often next day service. The best known companies in
this field are United Parcel Ser- vice ("UPS"), Federal Express
("FedEx") and DHL. Given the rapidly globalizing economy that
utilizes a just-in-time production schedule, ex- press delivery of
parts has become essential to global operations of busi- nesses.
Further, express delivery offers faster delivery of business
documents, thereby promoting more rapid transactions for services.
It also allows small and medium-sized businesses to compete in the
global mar- ketplace by giving them access to an international
distribution system.
Express delivery requires a robust service system that involves air
and ground transport, distribution centers, delivery, and the use
of advanced technologies in all facets of its business to track
items and provide informa- tion. Each of these segments is a
potential bottleneck that would slow ex- press delivery services if
governments were to erect barriers to competition in order to
protect their domestic monopolies, the domestic postal service
providers.5 Such bottlenecks exist when monopoly postal operators
cross- subsidize their competitive express delivery services via
their monopoly services.6 Costs and delays associated with cross
border parcel delivery, and unequal treatment toward postal
incumbents are other methods by
2 For examples of anticompetitive barriers see infra Section III. 3
Barriers to trade have been found to lower economic growth. See
Sebastian Edwards,
Openness, Productivity and Growth: What Do We Really Know, 108
ECON. J. 383 (1998); Ann Harrison, Openness and Growth: A Time
Series, Cross-Country Analysis for Develop- ing Countries, 48 J.
DEV. ECON. 419 (1996).
4 JEAN TIROLE, THE THEORY OF INDUSTRIAL ORGANIZATION 66-67 (MIT ed.
1988). 5 See infra Section llI. 6 OECD, INTERNATIONAL PARCEL
DELIVERY, OCDE/GD(97) 151, 12 (1997).
354
Express Delivery and the Postal Sector 23:353 (2003)
which governments stymie competition in this sector, as Section III
de- scribes.
These anti-competitive barriers keep the price of express delivery
and mail services artificially high. Moreover, there is a link
between mail ser- vice generally and express delivery service. A
lack of competition in mail service leads to a decreased mail
market, which reduces the size of the ex- press delivery services
market as well. Put differently, "the regulatory situation in
countries A and B does not only affect domestic parcel rates, but
it also exerts an impact on the entire price for international
transport and delivery."8 In any one country, a lack of competition
in general mail ser- vice has a ripple effect on the
competitiveness of that country's express de- livery service,
which, in turn, has a ripple effect on other countries' mail
service (including express delivery services). These pernicious,
unequal practices serve to destroy a part of the international free
market system and thus to limit global consumer welfare. It is
because of this linkage that a global solution to anti-competitive
concerns in express delivery is needed- one that also addresses the
problem of state owned postal monopolies.
Express delivery service is a growing part of the global economy,
in part because express delivery companies have responded to the
conse- quences of public monopolies' increased transaction costs
due to inefficien- cies in delivering the service and insufficient
customer awareness. Express delivery service accounts for twelve
percent of the world market in postal services and market share is
growing by twenty percent a year.9 More gen- erally, air cargo
(including cargo for express delivery traffic) transports
thirty-seven percent of the goods in the world. Once commodities
such as oil and agricultural products are excluded from this
figure, nearly half of all global trade by value is transported by
air express and cargo transportation. The importance of air
transport and express delivery will only increase over time.
Currently cargo and express traffic is growing at six to seven
percent a year while passenger traffic is only increasing at
between three and four percent a year.'° The growth of air cargo
will surpass that of air passenger transportation over the next
twenty years."
The growth in express delivery is key because as it grows, so does
the international economy. Thus, barriers to competitive entry in
this sector can have a deleterious effect upon the global economy.
As the Organiza-
7Id. at 40. This occurs because the price charged might be too high
to use the service and/or because the low savings in time in
providing the service when there is lack of compe- tition does not
encourage an increase in demand.
' ld. at43. 9 Joan M. Feldman, Cargo Multilateral Stuck in Neutral,
AIR TRANSPORT WORLD, Sept.
1, 2001, at 93. 1o Id. at 91 (quoting Brian Campbell, president of
Campbell-Hill). "1 97 Shapes Up as Year of Rapid Growth, AIR
COMMERCE, Jan 27, 1997, at 10.
Northwestern Journal of International Law & Business 23:353
(2003)
tion for Economic Co-operation and Development ("OECD") has noted,
"Costs and delays associated with cross-border parcel delivery can
be a ma- jor disincentive for consumers wanting to make purchases
from other coun- tries."' 2 The high costs are particularly
apparent since the rates for international service are
significantly higher than domestic rates of a com- parable
distance.13 Given the growing cost that these barriers and higher
costs create, a fundamental reworking of the entire postal system
is needed to ensure that express delivery services thrive.
III. CURRENT PROBLEMS
Basic economic theory teaches that free trade increases consumer
wel- fare.14 Though trade and liberalization may not directly lead
to growth, empirical research shows that there is a positive
correlation between per capita income and the share of investment
in Gross Domestic Product ("GDP"). Indirectly, therefore, trade
stimulates growth through invest- ment. 1 5 Free trade and the
reduction of barriers improve economic per- formance because they
force competition in domestic markets.' 6 As Douglas Irwin
notes:
This competition diminishes the market power of domestic firms and
leads to a more efficient economic outcome. This benefit does not
arise because foreign competition changes a domestic firm's costs
through changes in the scale of output... [r]ather, it comes
through a change in the pricing behavior of imper- fectly
competitive domestic firms. Firms with market power tend to
restrict output and raise prices, thereby harming consumers while
increasing their own profits. With international competition, firms
cannot get away with such con- duct and are forced to behave more
competitively.' 7
2 OECD, supra note 6, at 56. 3 id. 14 See, e.g., JOHN STUART MILL,
PRINCIPLES OF POLITICAL ECONOMY 271 (Appleton ed.
1864); ADAM SMITH, AN INQUIRY INTO THE NATURE AND CAUSES OF THE
WEALTH OF NATIONS 473 (Oxford ed. 1976); Stephen S. Golub &
Chang-Tai Hsieh, Classical Ricardian Theory of Comparative
Advantage Revisited, 8 REV. INT'L. ECON. 221 (2000); Paul Krug-
man, Growing World Trade: Causes and Consequences, 1 BROOKINGS
PAPERS ON ECON. ACTIVITY 327, 330 (1995).
15 See Ross Levine & David Renelt, A Sensitivity Analysis of
Cross-Country Growth Re- gressions, 82 AMER. ECON. REV. 942
(1992).
16 Recent research also shows a positive correlation between the
growth of exports and economic growth. See, e.g., J. DIRCK STRYKER
& SELINA PANDOLFI, IMPACT OF OUTWARD- LOOKING, MARKET-ORIENTED
POLICY REFORM ON ECONOMIC GROWTH AND POVERTY (Har- vard Institute
for International Development ed. 1997). This correlation, however,
is indi- rect, since trade stimulates growth through investment.
See Levine & Renelt, supra note 15, at 942 (identifying a
positive, robust correlation between growth and the share of
investment in GDP, and between the investment share and the ratio
of international trade to GDP).
17 DOUGLAS IRWIN, FREE TRADE UNDER FIRE 33 (2002).
356
Express Delivery and the Postal Sector 23:353 (2003)
Trade forces firms to become more efficient in order to deal with
competi- tors. If such firms do not, they will lose out on
potential profits and if run very poorly, even fail. Likewise,
where there are barriers to trade, interest groups exact rents that
lower consumer welfare. Where such barriers exist, the incentive to
offer better service is lost.
Often, it is a state entity that holds a key part of the market and
uses it to exclude rivals.18 It is not surprising, therefore, that
governments have created a number of barriers for express delivery
services. These barriers are manifested in a number of different
ways, as described in the following examples.
A. Cross-subsidization of Express Delivery Services by Suppliers
Granted Special or Exclusive Rights in the Regulated Postal
Sector
The United States Trade Representative ("USTR") has noted continu-
ing problems regarding the European postal sector, stating that
"the preva- lence of postal monopolies in many European Union
countries restricts [express service providers'] market access and
subjects them to unequal conditions of competition."' 9 The USTR
report notes in particular prob- lems in Belgium, where
cross-subsidization may be an issue, as well as Germany where
Deutsche Post may have engaged in predatory pricing and
cross-subsidization. Further the USTR report notes that many
observers be- lieve that the German government worked to delay the
EU decision on whether Deutsche Post cross-subsidized and used
other methods to forestall competition. 20 The Deutsche Post case
offers an interesting example of a cross-subsidization problem that
express delivery providers face. The E.U. first received complaints
regarding Deutsche Post in 1994 regarding anti- competitive
cross-subsidization and other practices. However, the European
Commission ("EC") waited until July 1999 before it opened a full
investi- gation into the matter. They claimed that Deutsche Post
stalled in providing necessary data for the investigation. 21 A
Deutsche Post spokesman as much as admitted that there was
cross-subsidization but that at the time it oc- curred (1990-1995),
German laws on the subject were ambiguous. 22
Deutsche Post has also been fined $21.6 million for offering
loyalty rebates to mail order customers; the European Commission
stated that such rebates
18 Eleanor M. Fox, Toward World Antitrust and Market Access, 91 AM.
J. INT'L L. 1, 22
(1997). 19 UNITED STATES TRADE REPRESENTATIVE, 2002 REPORT ON
FOREIGN TRADE BARRIERS
127 [hereinafter USTR REPORT]. 2 id.
21 James Kanter, Deutsche Post May Face Record EUR800 Mln-Plus EU
Penalty, Dow
JONES INT'L NEWS, Jan. 28, 2002. 22 Philip Shishkin & Rick
Brooks, Deutsche Post to Split Up in Settlement That May Fan
Battle Over U.S. Market, WALL ST. J., Mar. 21, 2001, at A3.
Northwestern Journal of International Law & Business 23:353
(2003)
prevented other companies from entering into that market.2 3 The EC
also fined Deutsche Post for disrupting international mail bound
for Germany. However, the $860 fine was only symbolic, because
German courts con- doned the practice.24 Recently, the EC ordered
Deutsche Post to repay E572 million for state aid that the German
government gave it in violation of E.U. Article 87.25 The aid was
used for cross-subsidization to undercut the prices of rivals in
the express delivery market.26 Deutsche Post also may have used its
cash flow from its regulated monopoly in Germany to launch into
unregulated competitive business.27 This is cross-subsidization,
under which Deutsche Post built a one stop shopping standard,
express delivery service, freight and even a financing arm with its
revenues from its monop- oly service.2 8
In the Belgian case, the European Commission decided that the Bel-
gian postal operator De Post la Poste ("La Poste") abused its
dominant posi- tion by making a preferential tariff in the general
letter mail service subject to the acceptance of a supplementary
contract covering a new business-to- business ("B2B") mail service.
This B2B service competed with the "docu- ment exchange" B2B
service provided in Belgium by Hays, a private under- taking
established in the United Kingdom. As La Poste exploited the
financial resources of the monopoly it enjoys in general letter
mail in order to leverage its dominant position there into the
separate and distinct market for B2B services, the Commission has
imposed a fine of E 2.5 million.29
B. Unfair Competition from Post Offices that Limit the Ability of
Foreign Firms to Compete
In Canada, the government has the ability to give direct subsidies
to its postal arm, Canada Post. The government pays for Canada Post
publica- tions for revenue and includes Canada Post's employees as
part of the fed- eral government's pension plan. By this measure,
the federal government subsidizes the labor costs for Canada Post.
30 There is no corresponding payment by the Canadian government of
pension plans for private competi-
23 id. 24 Bruce Barnard, EU Condemns Deutsche Post Practices, J.
COM., July 26, 2001. 25 Case COMP/35.141, Deutsche Post AG, 2001
O.J. (L125) 26
id.
27 Neil Boudette, Private Courier: When Germans Open the Mail, They
Get Message on
Capitalism, WALL ST. J., Nov. 20, 2000, at Al. 28 This practice is
certainly not unique to Deutsche Post. Rather, it is inherent to
state-
owned monopoly postal services. For example, the Dutch Post Office
(KPN) used its mo- nopoly profits to cross-subsidize its
acquisition of the express delivery carrier TNT for over $1.5
billion. OECD, supra note 6, at 17.
29 COMP/37.859, De Post-La Poste, 2002 O.J. (L 61).3o J. Greg Sidak
& Daniel F. Spulber, Monopoly and Mandate of Canada Post, 14
YALE
J. ON REG. 1, 10 (1997).
358
tors of Canada Post.
C. Discriminatory Treatment for Foreign Suppliers with Respect to
Size and Weight of Packages
Size and weight restrictions prolong postal monopolies so as to
shelter incumbents from competition from express delivery and other
services. A proposed law by the Chinese government would place
weight and rate limitations on packages that could be delivered by
foreign express delivery companies. 3' Any shipment under 500 grams
would be restricted to the Chinese postal monopoly, except when
such firms charge more than the China Post.32 Such limitations
would narrow the services express delivery companies could offer
consumers and would grant an anti-competitive mo- nopoly to the
Chinese Post. In a market estimated to be worth $1.8 billion
annually and which has grown at a rate of 30 percent in recent
years, such a proposed law is significant. 33
A similar case of weight restrictions can be found in Mexico. The
Mexican post office ("Sepomex") had losses of $200 million in 2000
and $600 million in 2001. Rather than focus on improving the
efficiency and quality of Sepomex, the Mexican government is in the
process of limiting competition by express delivery service
providers. A new proposal sent to the Mexican Chamber of Deputies
would require all packages weighing 350 grams or less to be sent
exclusively through Sepomex except in cases where a private firm
offers extra services such as postal tracking, immediate deliv- ery
or digital signatures, or when the price for services is at least
double those of Sepomex. 34 Currently,, over half of Mexico's
corporate mail is de- livered by private companies.
D. Unfair Restrictions on Flight Times and Landing Slots Trade
negotiations between the United States and Japan have reduced
some of the more onerous barriers to entry for express delivery
companies operating in Japan. In January 1998, Japan and the United
States reached an aviation agreement that liberalized regulations
going forward, and in- cluded further provisions to take effect
automatically after four years if, by that time, a fully
liberalized agreement was not reached. The agreement lifted access
restrictions on incumbent carriers for all U.S.-Japan
services,
31 Daniel Pruzin, China Comes Under Fire at WTO overt Banking,
Insurance, Express
Delivery Commitments, INT'L TRADE REP., June 13, 2002. 32 Keith
Wallis, Rules Deliver Blow to Leading Couriers, HONG KONG MAIL,
Apr. 18,
2002, available at 2002 WL 13735086. 33 Edwin Chan, Chinese Express
Post Stand-OffSet To Drag On-FedEx., REUTERS, June
17, 2002, available at http://global.factivia.com. 34 Paul Day,
Spotlight, Bus. MEXICO, May 1, 2002, available at 2002 WL 7685510.
35 Id.
359
Northwestern Journal of International Law & Business 23:353
(2003)
allowing operations from any point in the United States to any
point in Ja- pan. Further, the agreement created opportunities for
non-incumbent carri- ers (UPS and Polar Air Cargo) to transport
cargo to destinations beyond Japan. Within four years, an
additional all cargo carrier will be given entry access to the
Japanese market.36 During this interim period, however, all other
foreign express delivery firms have been denied equal landing
rights in Japan.
E. Uneven Enforcement of Existing Antitrust Laws or Exemptions to
these Laws
The European Commission recently found that the E9 billion subsidy
to Poste Italiane by the Italian government was not illegal state
aid, since the money was in part a compensation for Poste
Italiane's historically low efficiency. 37 Nevertheless, such
behavior is anti-competitive because the government has chosen to
bail out its national favorite mail carrier rather than to let the
market punish inefficient operators for their low quality ser-
vice.
F. Mandatory Requirements for Partnerships with Local Firms as a
Condition for Establishment
In some cases, mandatory requirements for partnerships means local
equity requirements in excess of 49 percent for a joint venture. In
some countries, foreign companies may only own as little as 10
percent of a joint venture. This prevents foreign private companies
from exercising the con- trol necessary to execute beneficial
decisions, and therefore results in dis- criminatory treatment. 38
For example, China prohibits express delivery companies from
operating independently. Instead, they must enter into a joint
venture with a Chinese company, in which the entrant cannot own a
majority stake until the end of 2006. 39 Foreign express delivery
companies doing business in China must also wait one year before
establishing branch offices and five years before entering into a
second joint venture. These limitations constrain the ability of
foreign express delivery companies to develop on a national basis.
This is not a surprising policy approach since sometimes countries
replace tariffs with non-tariff barriers to impede trade and
competition. Moreover, these governments place additional limits
on
36 See U.S. Department of Transportation, United States, Japan
Reach Aviation Agree-
ment That Provides Immediate Benefits, Sets Stage For Further
Liberalization, (Jan. 30, 1998), at
http://www.dot.gov/affairs/1998/dot1898.htm (n.d.).
37 2002/782/EC, Poste Italiane SpA, 2002 O.J. (L282). 38 EU/WTO -
European Union Submits Requests For Services Liberalisation,
EUROPEAN
REPORT, July 6, 2002, available at 2002 WL 13766833. 39 Richard
McGregor, The Americas & International Economy-China's Postal
Service
'Restricting' Competitors, FIN. TIMES, Apr. 2, 2002, available at
2002 WL 16945470.
360
investing in preexisting domestic enterprises.4 °
G. Lack of Transparency of Domestic Laws and Regulations and
Fairness of Administration
Since the summer of 2001, the Finnish Competition Authority has
been analyzing a case concerning the lack of transparency of
tariffs for hybrid mail applied by the Finnish Post Office.4 1 A
lack of transparency in the rules increases the cost of doing
business because it raises the cost of uncer- tainty in the
business decision equation.
H. Denial of Access to Government Programs Available to Domestic
Service Providers
A current UPS complaint against Canada Post reveals a number of ar-
eas in which the Canadian government has offered preferential
treatment to Canada Post.42 The government has exempted Canada Post
from charging recipients of packages imported through the postal
system a 7 percent tax on goods and services on the CDN$5 handling
fee. The government has also exempted Canada Post from interest and
penalties for the late payment or non-payment of duties.43
I. Discriminatory Tax Treatment for Foreign Suppliers
Unlike competitors that must pay taxes in the countries in which
they operate, state owned monopolies are often exempted from such
treatment. For example, until 1994, Canada Post paid no federal
income taxes even for years when the company earned positive net
income.44 The state postal companies may also gain exemption from
Value Added Tax ("VAT"), which can raise the price for express
delivery competitors by up to 15 per- cent.45 In Canada, the postal
service is free from many Customs' Suffer- ance Warehouse
regulations which apply to its express delivery competitors.
Customer broker license bonds, temporary importation bonds, air
carrier operation bonds, freight forwarder operation bonds, highway
car-
40 William E. Kovacic, Institutional Foundations For Economic Legal
Reform In Transi-
tion Economies: The Case of Competition Policy and Antitrust
Enforcement, 77 CHI.-KENT L. REv. 265, 302 (2001).
41 See 2001 Press Pack, Pending Internal Market/Competition Cases
and Complaints in the Postal Sector, at
http://www.freefairpost.com/others/pending.htm#finlan (n.d.).
42 Amended Statement of Claim of Under the Arbitration Rules of the
United Nations Commission on International Trade Law and the North
American Free Trade Agreement, UPS v. Canada [hereinafter UPS v.
Canada], at 4, available at http://www.dfaitmaeci.gc.ca/
tnanac/NAFTA-e.asp#UPS (n.d.).
43 id.
44 Sidak & Spulber, supra note 30, at 9. 45 OECD, supra note 6,
at 39.
Northwestern Journal of International Law & Business 23:353
(2003)
rier bonds, and sufferance warehouse bonds are among them.46 By
exempt- ing Canada Post from these bonding requirements, the
government imposes taxation by regulation on Canada Post's
competitors and raises their cost of business.
J. Denial of Access to Competitors
At present the Finnish Competition Authority is investigating
alleged discrimination of access for mail delivery and packages to
operators other than Finnish Post. This current investigation
follows a complaint filed with the national authority by a
competitor of Finnish Post.47
K. Lack of Consumer Choice in Selection of Delivery Services/
Reimposition of Monopoly
A proposed bill in Brazil to reorganize the postal service would
create a monopoly in the delivery of certain types of mail that are
not subject to current regulation, including express delivery
packages.48 A monopoly by the postal service would deny consumers
the option to choose their own provider of these services.
L. Restrictions on the Geographic Scope of Operations of an
Express
Service Provider within a Member's Territory
Entry into the Chinese market has been frustrated in the express
deliv- ery sector. China Post's express mail service has seen its
market share de- cline in the $1.5 billion Chinese market from 97
percent in 1995 to 40 percent in 2001, because of increased
competition. 49 In response, the Chi- nese government on December
24, 2001 moved to implement a policy that would require licensed
express delivery companies to file "entrustment" applications with
the postal service in each province where the carriers op- erate.
This has the potential to allow the postal authorities, under their
broad discretionary powers, to reject or delay applications for its
direct competitors. 50
46 UPS v. Canada, supra note 42, at 4-5. 47 See 2001 Press Pack,
supra note 41. 48 This proposed law would amend Article 9 of Law
No. 6.538/78. As DHL spokesman
Ricado Brandi remarks, it is a misguided proposal: "[I]f this is
approved, our company will either disappear, or will be reduced
dramatically in both revenue and number of employees because we
will not be able to ship documents, which is still the bulk of our
business." Larry Luxner, It's Not Letter-Perfect: Small-Package and
Courier Services Say Pending Legislation Is Confusing and Would Put
Them Out of Business, J. COM., Dec. 3, 2001.
4 McGregor, supra note 39. 50 Pruzin, supra note 31.
Express Delivery and the Postal Sector 23:353 (2003)
M. Inability to Expedite Delivery Service through Adoption of Rapid
Release Customs Procedures for Express Consignments for which
Immediate or Expedited Release is Requested
Brazil refuses the use of electronically produced airway bills.
This has the effect of preventing the use of certain types of
software for express de- livery and slows the customs process for
those shipments that are known as "just in time."5' Unfair and slow
customs services also add costs to express delivery providers.
Because items are subject to import duties, custom clearance
procedures must be applied. This creates time delays for the de-
livery of a package. 2
N. Conflict of Interest between the State as both Regulator and
Market Participant
On July 30, 2001, the European Community sent a "reasoned opinion"
to the Belgian authorities for incorrectly implementing EC
Directive 97/67/EC ("Postal Directive"). Belgium maintains a system
where the na- tional postal regulator is not independent. The
opinion responds to the fact that Belgium's Minister for Postal
Services performs both managerial and regulatory functions,
creating a conflict of interest that is against the provi- sions in
the Postal Directive. 3
0. Implications
Examples of restraints on competition and trade such as those dis-
cussed above have the effect of raising the barriers to entry for
private for- eign firms. In this context, competition between
state-owned and private firms is weak. Thus, the benefits of
competition which might have flowed to the consumer are sacrificed
and shipment costs remain unnecessarily high. As the OECD
notes:
[S]hipping a 3 1/2 KG parcel with the United States Postal System
from New York to London is more than two times as expensive as a
shipment from New York to Los Angeles, although the distance is
similar. In some cases interna- tional shipments can be about four
times as expensive as domestic delivery over comparable distances.
Furthermore, the prices for parcels that private firms charge in
general are higher than the prices of public suppliers.54
The OECD breaks down the types of charges that go into the price
increases
"' USTR, 2002 National Trade Estimates Report on Foreign Trade
Barriers, at 18, at http://ww.ustr.gov/reports/nte/2002
(n.d.).
52 OECD, supra note 6, at 50. 53 See 2001 Press Pack, supra note
41. 54 OECD, supra note 6, at 11.
Northwestern Journal of International Law & Business 23:353
(2003)
built into each step of the process. In one OECD example, a shirt
bought in New York that weighs 3 2 kilograms and has a retail value
of $100 is shipped from a point in the United States that lies
precisely between Paris and Anchorage Alaska. The OECD
explains:
If delivered to Anchorage, Alaska, the UPS transportation costs,
including in- surance, are $31.50. The rate to Paris, including
brokerage fees and insurance, is $77.50 to which are added 13 per
cent customs duty, 20 per cent VAT, in addition to the customs duty
and VAT charged in transportation costs. The door-to-door shipping
cost to the consumer is $93 from New York to Paris, compared with
$31.50 from New York to Anchorage. The total cost of this purchase,
including transport, is $139.75 in Anchorage, and $227.58 in Paris.
The shipping distances are roughly equivalent and Anchorage is less
densely populated than Paris. 55
Given that the price difference is approximately $90 between the
two destinations, one realizes the enormous cost that trade
barriers place on the global economy.
Equally significant is the fact that postal monopolies have entered
into the express delivery sector and have financed these
acquisitions through their monopoly rents. As the European
Commission has noted:
We are faced with a situation where the bottleneck position of the
postal in- cumbents for letter mail protected by a legal monopoly
continues for the time being while we face at the same time
announced intentions by the same actors to dominate the
international mail / parcel / logistics markets. Inevitably, this
combination of legal monopoly and strategic expansion implies a
high risk for the consumer, as any lack of competition combined
with market dominance does. It shows the importance which
competition law must take in the current situation.56
It is because of cross-subsidization by monopoly providers that
particular urgency is required to aggressively pursue a solution
that will lead to the elimination of barriers to trade and open up
competition by eliminating laws and regulations that prevent
companies from competing on equal footing.
The U.S. experience in admitting foreign competition to its express
de- livery markets in the early 1980s illustrates the connection
between in- creased competition and greater consumer welfare in
this business sector. American regulators understood that
competition in express delivery ser- vices would yield greater
economic benefits. The Civil Aeronautics Board
" Id. at 19. 56 Hans Ungerer, European Commission, Postal Services,
Liberalisation, and EU Compe-
tition Law: The Next Phase, Developing Competition (June 11, 1999),
at http:// europa.eu.int/comm/competition/speeches/text/sp
1999_018_en.html.
Express Delivery and the Postal Sector 23:353 (2003)
in its Notice of Proposed Rulemaking noted that,"[c]ompetition,
free of government intervention, is usually the best way to
optimize consumer benefits. The greater the number of suppliers,
the greater the chances that all segments of the public will have
their demands satisfied." 57 The notion that greater competition
would lead to more efficient outcomes and greater consumer welfare
was embodied in the Final Rule. In granting foreign air freight
service providers access to the U.S. market, the Final Rule noted
that such changes had the ability to "promote competition among
indirect air carriers, increase business on U.S. direct carriers,
provide consumers with more price/service options, and reaffirn the
U.S. commitment to promote competition in the air transport
industry. 58
IV. SOLUTIONS
A. The Problem with Government Regulation and the Need for
Regulatory Reform
Traditional government regulation is not an effective way to
channel market forces. Government regulators operate in an
environment of infor- mational asymmetry. They lack the benefit of
data on the operations and expenses of the companies they regulate.
The companies have no incentive to offer such information to
regulators. In fact, they have an incentive not to turn over such
information or, at the very least, an incentive to provide less
than fully accurate information. These companies can leverage the
in- formation asymmetry to generate greater profits than they would
be able to otherwise achieve in a competitive market. The costs of
regulation can be substantial. In the United States, one study
estimates that the cost of all regulation in 1991 was $542 billion,
which translates to 9.5 percent of the GDP 9 Similarly, the cost
savings from deregulation can be significant. According to another
study, aggregate gains from deregulation in the United States
amounted to between $35 and $46 billion per year.60 These gains
through deregulation are not limited to the United States.
Deregula- tion in the developing world can also lead to savings.
Wherever such stud- ies have been performed, savings have amounted
to at least a few
57 Proposed Rule to Allow Foreign Indirect Air Carriers To Organize
Charters and Con- solidate Freight in Interstate and Overseas
Markets, 46 Fed. Reg. 35664, 35565 (July 10, 1981) (to be codified
at 14 C.F.R. pts. 297, 380).
58 Foreign Air Freight Forwarders and Foreign Cooperative Shippers
Associations, 47 Fed. Reg. 19683, 19683 (May 7, 1982).
59 THOMAS D. HOPKINS, COSTS OF REGULATION: FILLING THE GAPS, Report
prepared for the Regulatory Information Service Center, Washington,
D.C., 1992.
60 Clifford Winston, Economic Deregulation: Days of Reckoning for
Microeconomists, 31 J. ECON. LIT. 1263, 1284 (1993).
Northwestern Journal of International Law & Business 23:353
(2003)
percentage points of the GDP.61 Not surprisingly, regulatory reform
has led to the promotion of greater competition in
industry.62
B. Privatization
One element of greater deregulation is privatization. Privatization
helps to create incentives for more efficient economic behavior. It
reduces governmental interference in economic activity, introduces
competition to consumers and exposes formerly state-owned
industries to competition.63
Regulators may want to privatize because state-owned industries are
not commercially viable. Such companies' financing poses a problem
for the governments concerned, specifically the ability to maximize
the revenues that governments can extract from the sale of such
enterprises. Yet, in some countries, the impulse to pawn off market
share in faltering industries on new entrants is tempered by the
state's reluctance to surrender control over the outflow of
economic benefits for political reasons.64 The possibil- ity of
market distortion through "rent seeking ' 65 in an anti-competitive
sec- tor may be highest when there is no clear distinction between
where the public sector monopolist operates and where the
competitive segment should begin.
Privatization has generally brought economic success to countries
un-
61 J. Luis Guasch & Robert W. Hahn, The Costs and Benefits of
Regulation: Implications for Developing Countries 22 (1997),
available at http://www.worldbank.org/wbi/publicfi-
nance/publicresources/hanh.pdf at 22. See also Omar Chisari et al.,
Winners and Losers from Utility Privatization in Argentina: Lessons
from a General Equilibrium Model, WORLD BANK (1996), available at
http://www.worldbank.org/html/dec/Publications/Workpa- pers/WPS
1800series/wps 1824/wps1824.pdf; J. Luis Guasch & Pablo
Spiller, Managing the Regulatory Process: Design, Concepts, Issues
and the Latin American and Caribbean Story, WORLD BANK
(1997).
62 DAVID M. NEWBERY, PRIVATIZATION, RESTRUCTURING, AND REGULATION
OF NETWORK UTILITIES (MIT ed. 1999).
63 Such an introduction of competition can only occur when
liberalization accompanies a process of privatization. Otherwise,
privatization will merely replace a public monopoly with a private
monopoly. See William L. Megginson et al., The Financial and
Operating Performance of Newly Privatized Firms: An International
Empirical Analysis, 49 J. FIN. 403, 407 (1994).64 See, e.g., Maxim
Boycko & Andrei Shleifer, A Theory of Privatisation, 106 EcON.
J. 309, 313-17 (1996); James Simms, WALL ST. J., July 8, 2000,
available at 2002 WL-WSJ 3399941. TNT Post Group ("TPG") has become
the world's first publicly traded postal system and is a provider
of express delivery and logistics services. The company's Royal TPG
unit is the primary mail delivery service in the Netherlands. TPG's
TNT unit is the express service arm.
65 Elizenga argues that the reason behind protectionism is rent
seeking. See Kenneth G. Elzinga, Antitrust Policy and Trade Policy:
An Economist's Perspective, 56 ANTITRUST L.J. 439, 441 (1987). Rent
seeking redistributes resources to other actors. See MANCUR OLSON,
JR., THE LOGIC OF COLLECTIVE ACTION: PUBLIC GOODS AND THE THOERY OF
GROUPS, 141-48
(1965).
Express Delivery and the Postal Sector 23:353 (2003)
dergoing broad-scale reorganization. Empirical evidence from the
1980s and 1990s suggests that privatized firms outperform state
owned firms and that privatization itself increases the efficiency
of the incumbent private domestic firms. 66 Since the privatized
firms then depend on the capital markets for funding rather than
from their governments, there is greater ac- countability because
markets demand profits. Companies will thus only supply those
products and services that they believe will yield profits.67
The incentives for the government-owned firms are the opposite. As
one scholar notes, "Because they do not need to maximize profits,
government firms are unconcerned about recouping losses. Indeed,
they are happy to hold prices below cost indefinitely, since that
increases output, which en- hances job security for government
managers. 68 In the context of postal markets, there is also no
incentive for monopoly-holding postal incumbents to improve
operations, to simplify their network structures, to automate
sorting processes or to improve their efficiency.69 For example,
the U.S. Postal Service had a loss of as much as $2.4 billion,70
with revenues of $63 billion v.7 Former U.S. Postal Service head
William Henderson has advo- cated privatization in order for it to
stay competitive. 72 Thus, in order to create a more responsive
competitive system to keep costs down, a market approach is needed
for the postal sector, which includes privatization of
73services.7
66 Megginson, supra note 62, at 405. See also Andrei Shleifer,
State Versus Private
Ownership, 12 J. ECON. PERSP. 133, 134-41 (1998). 67 In contrast, a
state-owned enterprise and its incentives for decision making are
not
necessarily responsive to market pressures. As Nellis has noted, it
is the "common and deadly ailment of public enterprises:
interference by owners who have more than profit on their minds."
John Nellis, Is Privatization Necessary?, WORLD BANK (1994),
available at
http://www1.worldbank.org/viewpoint/HTMLNotes/7/07nellis.pdf.
68 Rick Geddes, When it Comes to Engaging in Predatory Pricing and
Unfair Competition, Microsoft has Nothing on the U.S. Government,
2002: 1 HOOVER DIGEST (2002), available at
http://www-hoover.stanford.edu/publications/digest/021/geddes.html
(n.d.).
6 Helmut M. Diet & Peter Waller, Competing with Mr. Postman:
Business Strategies, Industry Structure and Competitive Prices in
Liberalized Letter Markets (2001), at n. 15, at
http://wiwi.uni-paderborn.de/bwl5/forschung/MrPostman.pdf.
70 Rick Brooks, U.S. Postal Service Offers Price Breaks on Global
Service, WALL ST. J., Auq. 17, 2001.
Neal E. Boudette, Private Courier: When Germans Open Their Mail,
They Get Mes- sage on Capitalism, WALL ST. J., Nov. 20, 2000. The
U.S. Postal Service may be forced to become more competitive as a
recent court case has removed antitrust immunity from the postal
service. See Flamingo Industries Ltd. v. U.S. Postal Service, 302
F.3d 985 (9th Cir. 2002).
72 William J. Henderson, End of the Route; I Ran the Postal
Service; It Should Be Privat- ized, WASH. POST, Sept. 2,
2001.
71 One way to create such a system is through the use of an auction
process rather than competitive bidding for the procurement of
services and for the sale of companies because such an approach is
more transparent. However, poor auction design may lead to bad
re-
Northwestern Journal of International Law & Business 23:353
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C. Deregulation and Liberalization
Privatization alone will not create a more competitive environment
unless the privatization proceeds hand in hand with regulatory
liberalization to prevent incumbents from maintaining monopoly
power. 74 Economists agree that "[p]erhaps the most important point
to emerge from the evidence is the importance of competitive
conditions and regulatory policies, as well as ownership, for
incentives and efficiency. 75 Liberalization is the process through
which heavily regulated sectors begin to be exposed to market
forces. As a process, liberalization has met with mixed success.
However, when well implemented, liberalization promotes growth.76
To liberalize, countries must implement rules to prevent
monopolies. Monopoly power not only hurts consumers through higher
prices but also from poorly exe- cuted services. 77 This is not
surprising given that weak competition gives
78monopoly firms little incentive to make efficient investments. 8
Without a well structured and equitable regulatory regime, the
incumbent and new en- trants will start on different footing,
contravening the truism that "market[s] cannot be expected to
discover the best competitors unless all companies begin on an
equal regulatory footing., 79 Otherwise, special treatment for
incumbents will obstruct the greater efficiency that competition
would yield.
Certain structural reforms are needed to reap the benefits of
efficien- cies and cost savings brought about by greater
competition. First, transpar- ency in governance is vital.80
Further, laws must restrict anti-competitive
suits. See, e.g., R. Preston McAfee & John McMillan, Auctions
and Bidding, 25 J. ECON. LIT. 699 (1987); D. Daniel Sokol, The
European Mobile 3G UMTS Process: Lessons From the Spectrum Auctions
and Beauty Contests, 6 VA. J.L. & TECH. 17 (2001).
See, e.g., D. Daniel Sokol, Barriers to Entry in Mexican
Telecommunications: Prob- lems and Solutions, 27 BROOK. J. INT'L L.
1 (2001) (describing how a poorly planned priva- tization of
Mexico's telecommunications monopoly left it with monopoly power
and has limited the ability of new entrants to compete in the
Mexican telecommunications sector. See also Scott J. Wallsten, An
Empirical Analysis of Competition Privatization, and Regula- tion
in Africa and Latin America (1999), available at
http://econ.worldbank.org/docs/ 553 .pdf.
John Vickers & George Yarrow, Economic Perspectives on
Privatization, 5 J. ECON. PERSP. 111, 118 (1991).
76 Guasch & Hahn, supra note 61. 77 ADAM SMITH, AN INQUIRY INTO
THE WEALTH OF NATIONS 163 (R. H. Skinner & A.S.
Skinner, eds., 1976). 78 Harvey Averach & Leland L. Johnson,
Behavior of the Firm Under Regulatory Con-
straint, 52 AM. ECON. REV. 1052, 1059 (1962). 79 J. Gregory Sidak
& Daniel F. Spulber, Deregulation and Managed Competition
in
Network Industries, 15 YALE J. ON REG. 117, 127 (1998). 80 For the
case in favor of transparency, see, e.g., Transparency
International, TI Source
Book 2000 Confronting Corruption: The Elements of a National
Integrity System, available at
http://www.transparency.org/sourcebook/index.html; Tara Vishwanath
& Daniel Kauf- mann, Towards Transparency in Finance and
Governance (1999), available at http://
Express Delivery and the Postal Sector 23:353 (2003)
business practices including cross-subsidization, which occurs when
a regu- lated part of a business subsidizes its competitive
affiliates by shifting af- filiate costs to the regulated portion
of the business. When some of the affiliate's costs are paid by the
regulated side (and built in to the cost struc- ture for the
regulated price for postal services through the use of accounting
methods that do not accurately allocate costs), consumers will have
subsi- dized the competitive affiliate giving them a cost advantage
relative to their competitors. Cross-subsidization and its cost
shifting distorts the express delivery market. Under such a system,
the efficient allocation of resources and the development of
competitive markets can be stymied. Liberalization increases
customers' choices as new entrants enter the sector and compete
with established incumbents.
A number of governments are loath to make the necessary changes.
Overstaffing is endemic in many monopolistic postal services. 81
Moreover, poor management and planning leads to an over-allocation
of funds to the postal sector. As te OECD has noted, reforms to
create competitive mar- kets in public utility industries have
largely bypassed the postal sector.82
Sadly, it is not uncommon for postal sectors to require heavy
subsidization out of economic necessity. 83 In the United States,
the government provides significant aid to the postal service. In
Barbados and Jordan, the subsidies are 40 percent of revenue. In
India, the subsidy is 100 percent of revenue. 84
Within the E.U., 85 percent of mail services remain controlled by
national postal monopolies. 85 Nevertheless, the universal service
requirement ac- counts for only 5 percent of the costs of postal
operators total turnover in the E.U.86 This suggests that the E.U.
provides indirect subsidies through the creation of
anti-competitive barriers. Similarly, if only governments would
contract with private firms, universal service problems could be
solved. As Andrei Shleifer notes:
A common argument for government ownership of the postal service is
to en-
www.worldbank.org/wbi/govemance/pubs/transfin.html.
82 OECD, Promoting Competition in the Postal Sector, available at
http://www.oecd.org/ oecd/pages/document/print template/0,3371
,EN-document-59 1-17-no- 14-4440-591--- ,00.html. OECD argues that
where regulators remain concerned over the presence of natural
monopoly elements in the postal sector, these concerns should be
addressed through an ac- cess regime rather than from a push to
stop privatization and liberalization of the sector.
83 According to Final Accounting Period Data, the Postal Service
ended FY 2001 with a loss of $1.5 billion. See
http://www.postalfacts.com/fmcrisis.htm.
84 Walsh, supra note 81, at 18. 85 John Parker & William B.
Cassidy, Billions Up ForGrabs, TRAFFIC WORLD, May 13,
2002. 86 See Ungerer, supra note 56.
369
Northwestern Journal of International Law & Business 23:353
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able the government to force the delivery of mail to sparsely
populated areas, where it would be unprofitable to deliver it
privately. From a contractual per- spective, this argument is weak.
The government can always bind private companies that compete for a
mail delivery concession to go wherever the government wants, or it
can alternatively regulate these companies when entry is free. It
cannot be so difficult to write the appropriate contract or
regulation; after all, the government now tells the U.S. Postal
Service where it wants the mail to be delivered.87
The argument that there cannot be a full privatization and
liberalization of postal services is spurious. Postal sectors are
commonly state-controlled and are often major employers, which may
render restructuring and liberali- zation politically difficult. 88
In the E.U., the postal sector generates 1.4 per- cent of the GDP
and employs 1.7 million people. 89 After railway services, postal
services are the biggest employer in Europe.90 Because of the
unnec- essary overstaffing, and therefore inefficient nature of
such postal services, there is all the more reason to liberalize
postal services. In countries where the postal incumbent's service
is of a poor quality, entrants can compete by offering better
quality services (such as express delivery services that have a
guaranteed time of arrival). 9' In such circumstances, the need to
keep a state run monopoly has only weak support.92 Because money is
siphoned off to inefficient and anti-competitive postal services,
this is money that is
87 Andrei Shleifer, State Versus Private Ownership, 12 J. ECON.
PERSP. 133, 136 (1998). 88 Tim Schwarz & David Satola,
Telecommunications Legislation in Transitional and
Developing Economies (World Bank, Technical Paper No. 489, 2000).
Under a private in- terest theory framework, this process can be
understood as one in which competing interest groups attempt to use
state power to capture rents for the successful groups at the
expense of less organized groups and the interest groups that do
not prevail. See Gary S. Becker, A Theory of Competition Among
Pressure Groups for Political Influence, 98 Q. J. ECON. 371 (1983);
Sam Peltzman, Toward a More General Theory of Regulation, 19 J.L.
& ECON. 211 (1976); George Stigler, The Theory of Economic
Regulation, 2 BELL J. ECON. & MGMT. SCI. 3 (1971), This article
uses a private interest framework. The alternative framework would
be that of public interest theory. Under public interest theory,
government regulation serves to maximize social welfare by
correcting market failures and protecting consumers from harm. That
theory is also known as the positive theory of regulation. See Paul
Joskow & Roger Knoll, Regulation in Theory and Practice, An
Overview, in STUDIES IN PUBLIC REGULATION (Gary Fromm ed., 1981).
89 See PostEurop, GA TS 2000: EU Postal Operators, Members of
PostEurop Contribute to Defining E. U. Requests on Postal and
Courier Services, at http://www.posteurop.org/eng/ print.asp?ne
id=311 (n.d.).
" John Parker, Applying Postal Breaks, TRAFFIC WORLD, Jan. 8, 2001.
91 This strategy is effective more generally in postal services as
well as in less developed
countries where the incumbent provider offers poor quality,
full-service services. In Argen- tina, OCA has entered the market
as a full-service provider and has a 10 percent market share
compared to the incumbent's (Correo Argentina) 40 percent share.
OCA is highly profitable because it can charge a premium of 50
percent for high quality service. See Dietl & Waller, supra
note 69, at 6; see also OCA, at http://www.oca.com.ar.
92 Schwarz & Satola, supra note 88.
Express Delivery and the Postal Sector 23:353 (2003)
not available for other needed functions such as spending for
health, social services and infrastructural development. Indeed,
competition will force incumbents to become more efficient and to
reduce costs. 93
Some argue that imposing a cost separation between the regulated
and unregulated markets might be a way to achieve greater sector
entry. In principle, cost separation allows auditors to track the
costs in both the regu- lated and unregulated portions of the mail
business. However, it seems that cost separation may not be an
effective solution and full separation of postal and express
delivery services may be needed, as in practice it is difficult to
differentiate between joint costs and because of the large costs
that would be involved in reflecting accurately accounts that would
be so large and vo- luminous. Thus, cost accounting is limited in
its ability to inform regulators as to the treatment of an
incumbent with competitors in the liberalized sec- tor.94
In spite of some political opposition, a number of countries have
pri- vatized and/or liberalized their postal services-Sweden,
Finland, New Zealand, and the United Kingdom. The United Kingdom is
the most recent example. Postcomm, the British regulator created a
three-stage plan for the liberalization of the U.K.'s postal
system. In the first phase (January 1, 2003-March 31, 2005), bulk
mail above 4000 items (from a single site in a similar format),
which constitutes approximately 30 percent of the U.K. let- ter
market by value, together with consolidation services and niche
services will be liberalized. In the second phase (April 1, 2005 -
March 31, 2007), the bulk mail threshold will be adjusted to open
up a total of 60 percent of the postal market by value. In the
final stage (begining April 1, 2007) all restrictions on market
entry will be abolished.95
Liberalization has made impressive inroads in terms of quality and
price of services, specifically in the postal sector. New Zealand
was one of the first countries to liberalize its postal services.
96 In the ten-year period since liberalization, a number of effects
have been noted. Productivity
93 This may be done by lowering wages, simplifying the delivery
network structure and its processes, increasing automation and
making redundant workers displaced by such auto- mation, and
raising labor productivity. Dietl & Waller, supra note 69, at
7.
94 This issue is problematic in all regulated industries. See,
e.g., Paul L. Joskow & Roger G. Knoll, The Bell Doctrine:
Applications in Telecommunications, Electricity and Other Network
Industries, 51 STAN. L. REv. 1249, 1267 (1999).
95 Promoting Effective Competition in UK, Postal Services, A
Decision Document (May 2002), available at
http://www.psc.gov.uk/Departments/SubSection.asp?ID=29.
96 Only New Zealand, Argentina, Finland and Sweden have opened up
fully their postal markets to competition. Dietl & Waller,
supra note 69, at 14, at wiwi.unipaderborn.de/
bwl5/forschung/MrPostman.pdf. New Zealand also liberalized beyond
mere privatization by abolishing the postal monopoly in 1998 under
the Postal Services Act. Now, any company may compete in all
sectors of the postal market. The Act eliminated all market access
and foreign ownership restrictions on postal operations.
Northwestern Journal of International Law & Business 23:353
(2003)
gains have been significant as 40 percent fewer staff since the
service's lib- eralization in 1987 handle 20 percent more business
than in the pre- liberalization period.97 The postal service,
responding to market pressures, was forced to become competitive
with regard to profitability. A loss of NZ$37.9 million in 1986-87
was transformed into to a NZ$47.7 million af- ter-tax profit in
1996-97. 98 This profitability occurred during a period, 1987-1998,
when the basic letter price remained at the same nominal level
(NZ$0.40). 99 This steady price, when adjusted for inflation,
implies a sig- nificant price reduction in real terms. Further,
during this period delivery performance of service for a basic
letter has improved sharply.'00
D. Infrastructural Development
Companies that are given opportunities to compete will create well
functioning infrastructures. Not surprisingly, the creation of a
robust and well functioning infrastructure serves to reduce prices
within an economy, promotes competition, and makes business entry
and trade more reliable.'O' A well functioning postal structure
serves to reduce transaction costs by giving businesses a more cost
effective way of completing transactions. It also serves to
mitigate local market power by encouraging new entrants and forcing
the exit of high cost firms in that market.' 0 2 Smaller businesses
gain access to international suppliers and can ship their products
abroad rapidly. Such a structure allows smaller businesses
opportunities to operate on a global scale. In this regard, a well
functioning postal sector and its express delivery component acts
as a distribution channel for market functions.' 0 3
V. LEGAL SOLUTIONS
Both economic theory and practice in the antitrust/competition
policy arena emphasize the importance of entry conditions as a key
aspect to com-
97 OECD, supra note 82. 98 id.
99 New Zealand actually lowered its basic stamp price from 45 to 40
cents in 1995, where the price has remained ever since. Rick
Geddes, A Twenty-first-Century Postal Service, available at
http://www-hoover.stanford.edu/pubaffairs/we/2002/geddes_0702.html
(n.d.).
00 OECD, supra note 97. 01 CHRISTINE KESSIDES, THE CONTRIBUTIONS OF
INFRASTRUCTURE TO ECONOMIC
DEVELOPMENT (World Bank, Discussion Paper No. 213, 1993). 1
02 P. AGHION & M. SCHANERMAN, COMPETITION, ENTRY & SOCIAL
RETURNS TO
INFRASTRUCTURE IN TRANSITION ECONOMIES (Centre for Economic Policy
Research, Discus- sion Paper No. 20521999).
103 Walsh, supra note 8 1.
Express Delivery and the Postal Sector 23:353 (2003)
petition. 10 4 Such entry conditions are particularly important
when dealing with the transition from a monopolistic to a
competitive marketplace. Without actual entry, consumers lack
choice for competing prices for ser- vices and incumbents have few
incentives to improve or widen the services that they offer. Mario
Monti, the head of the E.U.'s competition policy, has noted the
importance of competition policy and what it means: "[T]he goal of
competition policy... is to protect consumer welfare by maintaining
a high degree of competition in the common market. Competition
should lead to lower prices, a wider choice of goods, and
technological innovation, all in the interest of the consumer."'10
5 Competition policy laws have been structured to attempt to
achieve this goal and it is through anti- trust/competition policy
that public sector anti-competitive constraints must be
attacked.
Public sector barriers to entry remain a serious concern. Though
some believe that since government-owned firms cannot earn profits,
they are un- interested in driving out competitors; government
market actors will at- tempt to undercut their private rivals. As
Geddes notes:
"Government firms use the benefits of monopolized business sectors,
along with many other advantages of government ownership, to price
competitive ac- tivities below cost. Antitrust authorities call
this 'predatory pricing' when done by private firms but ignore the
behavior of government firms. The effect, however, is the same:
competing private companies don't enter or are driven from the
market."' 0 6
Private firms cannot sustain predatory pricing as easily because
sharehold- ers are likely to punish firms that price below marginal
cost in order to drive out competitors. A government market
participant, however, can sus- tain predatory pricing precisely for
the reason that market forces will not act to end such practices.
10 7
In this context, the E.U. has set up a system to manage public
sector re-
104 DENNIS CARLTON & JEFFREY PERLOFF, MODERN INDUSTRIAL
ORGANIZATION, (Scott
Foresmann & Co., 2nd ed. 1994); F.M. SCHERER & DAVID Ross,
INDUSTRIAL MARKET STRUCTURE AND ECONOMIC PERFORMANCE, (Houghton
Mifflin, 3rd ed. 1990). See also De- partment of Justice and
Federal Trade Commission, 1992 Horizontal Merger Guidelines,
available at http://www.ftc.gov/bc/docs/horizmer.htm (n.d.).
105 Mario Monti, The Future for Competition Policy in the European
Union, Address at Merchant Taylor's Hall, London (July 9, 2001), at
http://europe.eu.int.
106 Rick Geddes, Government Enterprises: The Forgotten Antitrust
Concern, available at
http://www-hoover.stanford.edu/pubaffairs/we/current/geddes_0600.html
(n.d.).
107Id. It is difficult to prove predatory pricing in the private
antitrust setting. In the United States one needs to produce
objective evidence of predatory intent that shows that a defendant
priced below the appropriate measure of incremental cost and
believed that the company would recoup this cost. See, e.g., Rebel
Oil Co. v. Atlantic Richfield Co., 146 F.3d 1088, 1097 (9th Cir.
1998).
Northwestern Journal of International Law & Business 23:353
(2003)
straints. Article 3 of the Treaty of Rome ensures that neither
private nor state actors could replace one form of competitive
barrier (those of the na- tion-state) with others (those between
states).'0 8 Article 31 of the Treaty prevents continued
monopolization in the transition from state-owned en- terprises to
a privatized firm. Its purpose is to prevent discrimination re-
garding the conditions under which goods are procured and marketed.
Article 86 protects consumers by preventing abuse of market
participants with a dominant position. Specifically, market
participants are prevented from applying dissimilar conditions to
equivalent transactions with other trading parties, which place
them at a competitive disadvantage.'0 9 Article 86(2) is a strict
threshold that requires an objective justification for the pro-
vision of services. It states:
Undertakings entrusted with the operation of services of general
economic in- terest or having the character of a revenue-producing
monopoly shall be sub- ject to the rules contained in this Treaty,
in particular to the rules on competition, in so far as the
application of such rules does not obstruct the per- formance, in
law or in fact, of the particular tasks assigned to them. The de-
velopment of trade must not be affected to such an extent as would
be contrary to the interests of the Community. 110
Article 87 lays out the rules regarding state aid. When such aid
distorts or threatens to distort competition by favoring certain
undertakings, such aid is found to be incompatible with the E.U."'
However, under Article 81, ex- ceptions are made to the competition
laws such that under certain circum- stances state aid is
permitted. Specifically under 81(3), there is a carve-out for
agreements or decisions which contribute to improving the
production or distribution of goods or to promoting technical or
economic progress but that does not: (a) impose on the undertakings
concerned restrictions which are not indispensable to the
attainment of these objectives; or (b) afford such undertakings the
possibility of eliminating competition with respect to a
substantial part of the products in question .II2 Further
exceptions are made for Member States to grant state aid under a
carve-out under Article 87(2) which is: (a) aid having a social
character, granted to individual con- sumers, provided that such
aid is granted without discrimination related to the origin of the
products concerned; (b) aid to make good the damage caused by
natural disasters or other exceptional occurrences; (c) aid
granted
108 Treaty Establishing the European Community, Nov. 10, 1997, O.J.
(C 340) 3, art. 3
(1997) art. 3 [hereinafter E.C. Treaty]. 9 Id. at art. 86.
1' Id. at art. 86(2).
Id. at art. 87. 112 Id. at art. 81(3).
Express Delivery and the Postal Sector 23:353 (2003)
to the economy of certain areas of the Federal Republic of Germany
af- fected by the division of. 113 If rigorously enforced, these
provisions could serve as an effective model for public sector
restraints on trade.
The European Commission's Green Paper, The Development of a Sin-
gle Market for Postal Services gave the initial steam to postal
sector liber- alization."l 4 The Green Paper examined the interplay
between competition and universal service. The E.U. established its
new regulatory framework in the Postal Services Directive of 1997.
15 It laid out a clear maximum scope for the reserved area (350
grams if less than 5 times 1 st class tariff) but only to the
extent necessary to maintain universal service. A new E.U. Postal
Directive purports to liberalize the sector by introducing new
areas of competition. Member States must begin opening other
aspects of the mar- ket to competition in 2003 and further reforms
will arrive in 2006.116 From 2003, these include delivery of
letters weighing more than 100 grams (or costing more than three
times the price of a standard letter) and all outgoing cross-border
mail.' 17 From 2006, liberalization will impact delivery of let-
ters weighing more than 50 grams or costing more than two and a
half times the price of a standard letter. The Postal Directive
also requires the EC to complete a study of each Member State that
would asses the impact of an internal market for postal services in
2009 and to make recommendations based on the study." 8
Unlike the E.U., U.S. antitrust laws deal with private but not
public re- straints of trade. Indeed, under the Parker Doctrine of
state action immu- nity, state legislative and regulatory policies
are immune from the reach of the Sherman Act on grounds of state
sovereignty and federalism.1 9 State action has been more narrowly
tailored in this context than in 14th amend- ment cases. In the
antitrust setting, state action refers "only to government policies
that are articulated with sufficient clarity that it can be said
that these are in fact the state's policies."'' 20 Judge Diane Wood
notes that the result of the Parker Doctrine in its present form is
that it prevents the crea-
113 Id. at art. 87(2). 14 Green Paper on the Development of a
Single Market for Postal Services,
COM(91)476. 115 Directive 97/67/EC of the European Parliament. 116
Directive 2002/39/EC. 117 However, the limitation to the latter of
these two liberalizations that would allow
Member States which need the revenue from this market segment to
continue to provide their universal service to reserve such service
from their competition. See New Postal Direc- tive, The European
Commission, at http://www.europa.eu.int/comm/internalmarket/post/
newdiretive en.htm.
118 id 119 Parker v. Brown, 317 U.S. 341, 352 (1943). 120A.D.
Bedell Wholesale Co. v. Phillip Morris, 263 F.3d 239, 254 (3d Cir.
2001) (citing
AREEDA & HOVENKAMP, ANTITRUST LAW: AN ANALYSIS OF ANTITRUST
PRINCIPLES AND
THEIR APPLICATION 221 (2d ed. 2001)).
Northwestern Journal of International Law & Business 23:353
(2003)
tion of uniform federal competition policy. 12' Taking Judge Wood's
analy- sis one step further, it would follow that the effect of a
global state action exemption presents the problem of a lack of a
global competition policy be- cause each country could create a
Parker exemption for its state actions.
B. WTO Solution
A key part of the WTO is the General Agreement on Trade in Services
("GATS"), which forms part of Annex I to the WTO Agreement. 122 The
purpose of GATS is to create favored nation status by reducing
barriers to trade. Renato Ruggiero, the former Director General of
the WTO, notes that the purpose of GATS has been the right of
establishment and the obli- gation to treat foreign services
suppliers equitably and objectively in rele- vant areas of domestic
regulation. 123 As a part of the WTO agreement, GATS is binding
upon all of the signatories to the WTO.
The market access provision of GATS prohibits six different types
of anticompetitive practices from being applied to foreign services
or suppliers in scheduled sectors. 24 Under Article XVII, countries
must not offer more favorable treatment to domestic providers.
Known as the national treatment article, Article XVII provides that
any foreign service or foreign service supplier be given treatment
that is not less favorable than that given to do- mestic
counterparts. 125
The current definitions to the GATS do not include express
services. However, a reading of the GATS might include such
services with regard to the competition in services provisions.
Under the definitions to the GATS, trade in services is the supply
of a service: (a) from the territory of one Member into the
territory of any other Member; (b) in the territory of one Member
to the service consumer of any other Member; (c) by a service
supplier of one Member, through commercial presence in the
territory of any other Member; and (d) by a service supplier of one
Member, through presence of natural persons of a Member in the
territory of any other Mem- ber. 126 Article I is also important in
that it establishes that government measures need not restrict
trade in services but merely affect such trade in services.
Measures by Members are defined as measures taken by: (i)
cen-
121 Diane Wood, United States Antitrust Law in the Global Market, 1
IND. J. GLOBAL
LEGAL STUD. 409,422 (1994). 122 General Agreement on Trade in
Services, Marrakesh Agreement Establishing the
World Trade Organization, Annex I B, LEGAL INSTRUMENTS-RESULTS OF
THE URUGUAY
ROUND vol. 31, 33 I.L.M. 44 (1994) [hereinafter GATS]. 123 Renato
Ruggiero, Towards GATS 2000-a European Strategy (June 2, 1998),
at
http://www.wto.org/wto/english/newse/sprre/brussIe.htm. 124 GATS,
supra note 122, at art. XVI. 25 Id. at art. XVII.
126 Id. at art. 1:2.
376
Express Delivery and the Postal Sector 23:353 (2003)
tral, regional or local governments and authorities; and (ii) non-
governmental bodies in the exercise of powers delegated by central,
re- gional or local governments or authorities. 127 Measure is
further defined as any measure by a Member, whether in the form of
a law, regulation, rule, procedure, decision, administrative
action, or any other form. 28 Under Ar- ticle XXVIII, a Measure by
a Member affecting trade in services includes measures in respect
of (i) the purchase, payment or use of a service; (ii) the access
to and use of, in connection with the supply of a service, services
which are required by those Members to be offered to the public
generally; and (iii) the presence, including commercial presence,
of persons of a Member for the supply of a service in the territory
of another Member.129
Such measures, therefore, might include situations involving
express deliv- ery services.
Under Article II of the GATS, each Member must accord immediately
and unconditionally to services and service suppliers of any other
Member treatment no less favorable than that it accords to like
services and service suppliers of any other country. 30 Only for
certain exemptions can a mem- ber have measures inconsistent with
the GATS. The GATS covers all ser- vices except those "supplied in
the exercise of governmental authority." But GATS Article I:3c
defines such excluded services very narrowly as "any service which
is supplied neither on a commercial basis nor in compe- tition with
one or more service suppliers." GATS Article VIII requires that a
monopoly supplier of a service must not be allowed to act
inconsistently with a member government's MFN obligations or any
specific commit- ments, nor to abuse its monopoly position. Since
many governments use their postal services as monopoly suppliers,
it is possible that express deliv- ery might fall into this
category where a postal monopoly abuses its mo- nopoly position to
cross-subsidize its non-monopoly business.
While there is no specific GATS treatment of express delivery ser-
vices, some public sector restraints on trade are covered under the
GATS. While GATS does not cover services ",supplied in the exercise
of govern- mental authority," it limits this reading under Article
I:3c to "any service which is supplied neither on a commercial
basis nor in competition with one or more suppliers.' 3' Since by
their nature express delivery providers are in competition both
with each other and with domestic postal services, one could make
the case that GATS should apply. Thus, under GATS the applicability
of express delivery and other postal services remains un-
127 Id. at art. 1:3. 128 Id. at art. XXVIII:(a).
_d. at art. XXVIII:(c).
I3 Id. at art. lI. 131 Id. at art. 1:3c.
377
Northwestern Journal of International Law & Business 23:353
(2003)
clear. 32 To address the issue that express delivery is not
included among the WTO classification list of goods, the United
States has proposed a defi- nition under which express delivery
services would be included under the WTO classification for
communications services. The proposed definition is:
Express delivery services are time-sensitive, utilize advanced
technologies for communication, and are integrated or controlled
from end-to-end. Express de- livery services consist of the
expedited collection, transport, and delivery of documents, printed
matter, parcels, and/or other goods, while tracking the loca- tion
of, and maintaining control over, such items throughout the supply
of the service. Services provided in connection with express
delivery services in- clude, but are not limited to, customs
facilitation and logistics management. Customs facilitation
consists of practices and procedures used to avoid delay of customs
processing or to obtain rapid release of shipments, while
satisfying customs requirements. Logistics is the process of
planning, implementing, managing, and controlling the flow and
storage of goods, services, and related information from the point
of origin to the point of consumption. Express de- livery services
may include one or more value added elements, such as collec- tion
from an address designated by the sender; release upon signature;
guarantee of delivery within a specified time; electronic and/or
other advanced technologies; and ability of the sender to confirm
delivery.'33
Such a definition would give a more definitive tool for
pro-competitive forces to open up the express delivery markets
worldwide. The GATS en- forcement mechanism is found under GATS
Article VI, which calls on the Council for Trade in Services to
develop any "necessary disciplines" to en- sure that "measures
relating to qualification requirements and procedures, technical
standards and licensing requirements do not constitute unneces-
sary barriers to trade."' 134 The acceptance of this definition
would make it easier for parties to bring a suit regarding barriers
to trade.
C. NAFTA
For those cases that arise among the United States, Mexico and Can-
ada, NAFTA has a number of provisions with which to combat anti-
competitive public sector monopoly practices. Under the investment
chap- ter (Chapter 11), NAFTA Article 1102 requires each NAFTA
party to ac- cord to investors of another party treatment no less
favorable than that it
132 Alessandra Perrazzelli & Paolo R. Vergano, Terminal Dues
Under the UPU Conven-
tion and the GATS: An Overview of the Rules and of Compatibility,
23 FORDHAM INT'L L.J. 736, 741 (2000).
133 U.S. Proposal on Express Delivery Services, available at
www.ustr.gov/sectors/ services/ express.html (n.d.).
134 GATS, supra note 122, at art. VI:4.
Express Delivery and the Postal Sector 23:353 (2003)
accords, in like circumstances, to its own investors with respect
to the es- tablishment, acquisition, expansion, management,
conduct, operation, and sale or other disposition of investments
.135 This means that a national post provider cannot be granted
privileges that such a provider could use for the purposes of
cross-subsidies to its non-monopoly segment unless such privi-
leges are granted to the postal provider's competitors. NAFTA also
has specific provisions for "Competition Policy, Monopolies and
State Enter- prises" under Chapter 15 of the Agreement.
Specifically under NAFTA Ar- ticle 1502(3)(a) a state monopoly
company cannot provide discriminatory treatment to use its monopoly
position to engage in anti-competitive prac- tices in a
non-monopolized market in its territory that adversely affects an
investment of an investor of another Party, including through the
discrimi- natory provision of the monopoly good or service,
cross-subsidization or predatory conduct.136 Article 1503 mandates
that any established state en- terprise accord non-discriminatory
treatment in the sale of its services.137
Currently in a Chapter 11 hearing before arbitration is the UPS
suit against the Canada Post in which UPS alleges that Canada Post
has used its mo- nopoly in letter mail services to cross-subsidize
against express delivery providers such as UPS. UPS is requesting
at least $160 million in damages, plus costs and tax consequences.
38
VI. CONCLUSION
The elimination of anti-competitive barriers to trade in the
express de- livery sector in the postal services sector would serve
to improve global consumer welfare by reducing costs. In order to
achieve this goal, countries must push for a system that deals with
private and public anti-competitive behavior. A system is needed
that incorporates both antitrust and trade law into a more
comprehensive competition policy. Competition should be en-
couraged by placing entrants on a competitive footing rather than
offering advantages to national favorites. Where the state is
immunized from com- petition policy, there is the potential for the
Parker Doctrine at the global level one that would allow for the
prosecution of private anti-competitive practices but would
immunize state owned corporations from antitrust li- ability and
competitive concerns.
A quick series of examples show how competition within the express
delivery sector has created greater consumer welfare because it has
led to greater efficiencies and innovations. For example, in
Europe, UPS has in-
' NAFTA, art. 1102(1). 136 NAFTA, art. 1502(3)(c)-(d). 117 NAFTA,
art. 1503. 138 Dispute Settlement-Chapter 11-Investment, Canada
Department of Foreign Affairs
and International Trade, at
http://www.dfait-maeci.gc.ca/tna-nac/parcel-e.asp (n.d.).
Northwestern Journal of International Law & Business 23:353
(2003)
vested in new technology to improve the quality of its signature
tracking, proof of delivery, and internet-based shipping and
tracking services. UPS claims that these improvements serve to
improve supply chain efficiency because they provide visibility,
multiple language capability and after sales service. 139 Likewise,
Federal Express has increased the coverage area of its noontime
delivery commitment because of enhancements of its line haul
operations in Spain and Portugal.140 Competition also leads to
mergers as competitors look to increase their scope and scale to
better compete in the more integrated marketplace. One function of
the increase in mergers is that it has led to greater transparency
in pricing via standardization of pric- ing and services.14 1 It
may also lead to greater efficiencies.
A vigorous use of existing laws and the addition of an explicit
express delivery services section to the GATS would help to combat
barriers to trade. Further, a more global antitrust system, if
based on the principal of increasing global consumer welfare, may
prove advantageous as a tool to open the express delivery sector to
greater competition. If current laws are not applied liberally to
promote greater efficiency, then a new global sys- tem of
competition policy may be required. Countries are working toward
agreed upon general principles in some areas of antitrust law under
the aus- pices of the International Competition Network and have
created a group that studies sector specific issues.142 The process
toward a global antitrust system may indeed be inevitable.143
Global standards may deal with the problem that a significant
number of states lack such laws at all. For exam- ple, only 13 of
the 34 states in the Western Hemisphere that are participat- ing in
negotiations for the Free Trade Area of the Americas have
competition laws. 144 On a global level, only 80 of the WTO members
have adopted competition laws. 145 In order to promote benefits for
consumers around the world, implementation of a robust competition
policy is needed.146 One area where a global antitrust/competition
policy would be
139 Express Services Unite Europe, LOGISTICS MGMT. &
DISTRIBUTION REP. (Sept. 1, 200 ).
141 Id.
142 "The purpose of this subgroup is to compile studies on
competition advocacy in spe-
cific regulated sectors: telecommunications, energy, air
transportation, and the legal profes- sion." See
http://www.intemationalcompetitionnetwork.org/sectoralstudies.html.
(n.d.).
1"3 Robert H. Hahn & Anne Layne-Farrar, Federalism in Antitrust
(AEI-Brookings Joint Center for Regulatory Studies, Working Paper
No. 02-9, 42, Sept. 2002).
144 See Free Trade of the Americas,
http://www.ftaa-alca.oas.org/ngroups/ngcompe.asp Indi'See
Competition Policy, WTO, http://www.wto.org/english/tratope/compe/
compe.htm
(n.d.)146 Some scholars are more skeptical about the creation of
antitrust laws. Paul E. Godek,
A Chicago-School Approach to Antitrust in Developing Economies, 43
ANTITRUST BULL.
380
Express Delivery and the Postal Sector 23:353 (2003)
particularly beneficial would be in the area of public sector
barriers to trade and particularly barriers that involve express
delivery service. With the po- litical will to use such laws, new
opportunities should emerge that will open up markets to great
opportunities for competition and therefore lower prices.
261 (1998); Robert D. Cooter, The Theory of Market Modernization of
Law, 16 INT'L REV. L. & ECON. 141 (1996). Note, however, that
these scholars state that even if an antitrust au- thority is
unnecessary, such authority is unwan'anted precisely because free
trade can ac- complish many goals of antitrust policy. Cooter, at
162.
Northwestern Journal of International Law & Business 23:353
(2003)
Northwestern Journal of International Law & Business
Winter 2003
Express Delivery and the Postal Sector in the Context of Public
Secto Anti-Competitive Practices
D. Daniel Sokol